Trying to figure out if it'd be worth it for me to transfer my Solo 401K to MySolo401K so I could use its Mega Backdoor Roth feature. I'm fully self-employed.
My understanding is if my self-employment income/biz profits are already high enough to max out employee/employer contributions at $69,000, then I wouldn't be able to use the Mega Backdoor option anyway, correct? Because the $69K space is already used up. As a solopreneur this would happen if I earn $230K+ in net biz income after expenses ($23K employee & $46K employer contributions).
However, if I earned, say, $100K, I can put in $23,000 as employee and $20,000 as employer (20% of biz profits). That's the max I can put in. But... with a Mega Backdoor... I as employee can add an additional $26,000 in after-tax employee contributions? And then immediately move those from the Solo 401K's after-tax account to its Roth account? (I would be putting all the normal employee/employer contributions into the pre-tax account). This doesn't involve moving anything to a Roth IRA, rather it's keeping things within the Solo 401K just moving into the Solo's Roth account, right?
Is this correct?
Also, what I read says b/c none of this involves any IRA, it's okay if I have Traditional IRA balances -- this Mega Backdoor method won't trigger any pro-rata rule or taxes even if I do have Trad IRA balances (unlike doing a Backdoor Roth conversion where you put money after-tax in a Trad IRA then convert it to a Roth IRA).
Is that correct?
Thanks for helping me make sure I'm understanding right! This is only worth it for me if a) I don't have to mess around with getting rid of Trad IRA balances, and b) my net biz profits are under $230K but still high enough that I can afford to contribute the extra cash up to $69K ($135K-$230K would be my sweet spot).
My understanding is if my self-employment income/biz profits are already high enough to max out employee/employer contributions at $69,000, then I wouldn't be able to use the Mega Backdoor option anyway, correct? Because the $69K space is already used up. As a solopreneur this would happen if I earn $230K+ in net biz income after expenses ($23K employee & $46K employer contributions).
However, if I earned, say, $100K, I can put in $23,000 as employee and $20,000 as employer (20% of biz profits). That's the max I can put in. But... with a Mega Backdoor... I as employee can add an additional $26,000 in after-tax employee contributions? And then immediately move those from the Solo 401K's after-tax account to its Roth account? (I would be putting all the normal employee/employer contributions into the pre-tax account). This doesn't involve moving anything to a Roth IRA, rather it's keeping things within the Solo 401K just moving into the Solo's Roth account, right?
Is this correct?
Also, what I read says b/c none of this involves any IRA, it's okay if I have Traditional IRA balances -- this Mega Backdoor method won't trigger any pro-rata rule or taxes even if I do have Trad IRA balances (unlike doing a Backdoor Roth conversion where you put money after-tax in a Trad IRA then convert it to a Roth IRA).
Is that correct?
Thanks for helping me make sure I'm understanding right! This is only worth it for me if a) I don't have to mess around with getting rid of Trad IRA balances, and b) my net biz profits are under $230K but still high enough that I can afford to contribute the extra cash up to $69K ($135K-$230K would be my sweet spot).
Statistics: Posted by DrivenToSuces$ — Thu Aug 15, 2024 4:18 pm — Replies 0 — Views 21